KUALA LUMPUR: SLP Resources Bhd is expected to start generating improved earnings once lockdown restrictions are lifted and the economy gradually opens.

       Kenanga Research in a report yesterday said SLP will be able to fulfill the strong demand for its products and ramp up their utilisation rate once all Malaysian states are out of the first phase of the National Recovery Plan.

       “Despite SLP’s production being adversely affected by a limited workforce (due to safety protocols) and thus resulting in lower utilisation rate of 45% and 50% (compared with 60% and 65% pre-lockdown), we remain optimistic on the company’s outlook.

       “We still expect an average utilisation rate of 65% for 2021.”

       SLP is a manufacturer of flexible plastic packaging products and plastic films.

       While resin prices have declined around 15% from its peak, Kenanga Research forecasts average selling price to taper off gradually and normalise in the subsequent quarters.

       “We continue to assume an average resin cost of US$1,100 (RM4,646) per tonne for SLP in 2021, which is in line with its average resin cost year-to-date.”

       The research house said it is maintaining its earnings forecast for SLP for the next two years.

       “We maintain our 2021 revenue and core net profit estimates of RM179.7mil and RM21.5mil, respectively, which are moderate relative to management’s targets.

       “We also maintain our 2022 revenue and core net profit estimates of RM185.3mil and RM22.5mil, as well as dividends per share of 5.5 sen each for 2021 and 2022, implying 5.9% yields.”

       Kenanga Research is reiterating its “outperform” call on the stock with an unchanged target price of RM1.22, based on a 2021 earnings per share estimate of 6.8 sen and ascribed forward price-to-earnings ratio of 18-times, which is 0.5 standard deviation to SLP’s five-year mean of 20-times.

       “We maintain our valuation to reflect their lower utilisation rate and possible disruption risk to SLP’s production due to a worsening Covid-19 situation.

       “We remain optimistic on SLP on the resilient demand for its plastic packing products, especially for niche products that fetch above-group margins as economies reopen.

       “SLP also offers an attractive dividend yield of 5.9%, which is above industry average of 3%,” the research house said.

       SLP’s net profit for the second quarter ended June 30, 2021 rose to RM4.68mil from RM4.10mil in the previous corresponding period, while the group’s revenue increased to RM41.53mil from RM34.80mil a year earlier.